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HOW TO BUILD, BUY OR SELL a LANDSCAPE MGMT COMPANY:
In the past 6 months, I’ve had a number of people ask me to advise them in valuing their business, or evaluate a business they’re considering purchasing. There’s a lot of interest and a lot of activity this year.
So, what’s a business worth?
To help you find out, you should follow three general rules.
1. Start planning TODAY! You never know when an opportunity presents itself, or when disaster strikes. Ideally, you’ll want at least 2-3 years planning before selling a business.
2. Hire a professional or ask an industry expert to help you
3. Maximize the guidelines listed below to bring the highest price.
The first place to look is your own business. This is a complex process, but here are the basics.
As a business owner, you should always be thinking of your company’s intrinsic value, and how you’ve achieved it. Most contractors look at the income statement (if they have one) at the end of the year and say “I made $100,000 net!” But, using the same financials, you might have actually increased the value of your company by $350,000, or reduced the value by $50,000. So, having the right information might mean a $400,000 swing in real value instead of $100,000 profit! Do you see how your daily decisions will be profoundly affected by this new knowledge?
You have assets that you can sell, but I’m here to tell you that you aren’t selling or buying “hard assets”. Heck, you can buy equipment anywhere, anytime. You’re really selling or buying “soft assets”; your ability to build a team, sell, market, satisfy, create relationships, forge loyalties, make a profit and grow the business.
In the Minnesota market, I would say that most businesses I’ve seen for sale are overpriced because somewhere, someone is saying “my company is worth one year’s gross sales” Some of this is encouraged by business brokers who don’t understand the green industry. They make a percentage off of the price of the sale, therefore, they encourage high pricing. If you’re going to use outside help, stay away from the brokers, at least at first.
Gross sales have little to do with the value, therefore, if your goal for 2008 is to grow the biz by 40%, then you could still decrease the value of the business, or even reduce it’s profits. Most companies who make the Inc. 500 fastest growing companies lose money! In the two years my companies would have made the Inc 500 list, we lost money.
Realize that businesses generally sell on multiples of earnings, which is much more complex than just profit!
Steve Hoogenakker
Concierge Landscape